The Bank of Nova Scotia, the second oldest bank in Canada, was the second largest Canadian bank in 2003 in term of assets (trailing only Royal Bank of Canada). Scotiabank, as it is usually called, conducts its activities through four major divisions: domestic banking, wealth management, Scotia Capital, and international. The domestic banking unit provides a full range of banking services to individuals, small businesses, and commercial accounts; its more than six million customers are served through a network of nearly 1,000 domestic offices and close to 2,200 automatic bank machines (ABMs), in addition to telephone banking, wireless services, and the Scotia OnLine Internet banking service. The wealth management unit, which encompasses Scotiabank's retail brokerage, mutual funds, and private clients services, has nearly three-quarters of a million clients and in excess of $82 billion in assets under management. Active in Canada, the United States, and Europe, Scotia Capital provides the bank's corporate, institutional, and government clients with corporate and investment banking services. The Bank of Nova Scotia is considered to be the most international of the "Big Five" Canadian banks. Its international banking operations range across more than 40 countries and include more than 720 branches and offices and more than 1,500 ABMs. Scotiabank ranks as the Caribbean's leading provider of financial services, has the largest presence in Asia of any Canadian bank, and maintains major holdings in Latin America, including majority ownership of Grupo Financiero Scotiabank Inverlat, S.A. de C.V. in Mexico and subsidiary operations in Chile, Costa Rica, and El Salvador.

Early Decades of Tentative Growth

The first public financial institution in the colonial port city of Halifax, the Bank of Nova Scotia was formed on March 30, 1832, to handle the economic activity associated with the area's lumber, fishing, farming, and foreign trade. None of the members of the first board of directors had any practical banking experience, but this did not deter them from setting up the necessary operations and appointing James Forman, a prominent citizen of Halifax, to serve as the first cashier (as the general manager was then called).

The bank officially opened in August 1832, a time of unfavorable economic conditions because of massive crop failures and a cholera outbreak. Early development, therefore, focused on establishing a foreign exchange business with agents in New York, London, and Boston, while local agencies and the main office in Halifax concentrated on making domestic loans.

Over the next 30 years, the bank grew slowly in the face of increased competition from existing institutions, such as the Halifax Banking Company and the Bank of British North America, as well as from new banks opening throughout Nova Scotia. It was not until the early 1870s that the staff also determined that growth had been stunted by Mr. Forman's embezzlement of C$315,000 since 1844.

The bank gradually recovered from these losses through the efforts of Forman's successor, William C. Menzies, who guided an expansion program that increased total assets to C$3.5 million by 1875. Though local industry was declining, growth continued throughout the decade as the bank found opportunities in financing coal mining, iron, and steel businesses serving the railway and steamship lines. These improvements in transportation stimulated manufacturing throughout Canada, which also served to fuel the bank's development.

The Bank of Nova Scotia expanded outside the Maritime Provinces in 1882, when it opened a branch in Winnipeg to take advantage of opportunities created by a real estate boom in the area. The boom collapsed within six months, however, saddling the bank with enormous losses and forcing the branch to close three years later.

In 1883, the Bank of Nova Scotia acquired the Union Bank of Prince Edward Island. This bank had sought a larger, stronger institution to help it weather hard times that had already forced the liquidation of one local bank and were seriously affecting others in the area. By the end of that year, the Bank of Nova Scotia was operating 23 branches in Prince Edward Island, New Brunswick, and Nova Scotia.

Although a depression in Canada in the early 1880s caused heavy losses stemming from the failure of several businesses, the bank had rebounded enough by 1885 to consider further expansion, this time in the United States. Minneapolis was chosen, because of its strong grain and manufacturing industries, to be the initial site for a direct lending and foreign exchange business. This office closed seven years later when the local environment became less favorable and other cities, such as Chicago, showed more potential.

In 1888 the bank opened an office in Montreal in a second attempt to establish a domestic presence outside of the Maritime Provinces. This office was followed a year later by an office in Kingston, Jamaica, the first time a Canadian bank had expanded outside North America or the United Kingdom. The next new branch opened in St. John's, Newfoundland, in 1894 to handle the business of two local institutions that had dissolved suddenly; this was the first move by a Canadian bank into Newfoundland, which would not become a province for another 55 years. Credit for this vigorous expansion goes to Thomas Fyshe, who became cashier in 1876 and resigned in 1897 after 21 years with the bank.

Accelerating Expansion, Early 20th Century

In March 1900 the bank moved its headquarters to Toronto, to be better able to take advantage of opportunities offered by the Klondike Gold Rush and the completion of the Canadian Pacific Railway, as well as to be closer to its other branches in Canada and the United States. Its move into Western Canada was only somewhat successful, however; several unprofitable branches closed soon after they opened, while others in Edmonton, Calgary, and Vancouver were slow to make a profit. Nonetheless, the bank considered expansion a necessary part of its overall strategic plan to achieve national growth and avoid takeover by another institution. Development in the East was more successful; 19 new branches opened in Nova Scotia and New Brunswick, 16 opened in Ontario, and four opened in Quebec between 1897 and 1909.

Beginning in 1901, Henry C. McLeod, who served as general manager from 1897 to 1910, waged a campaign to require all Canadian banks to undergo external inspection by the Canadian Department of Finance. This effort, prompted by the large number of bank failures that had occurred since 1895, was intended to win the public's confidence in its financial institutions. None of the other Canadian banks supported him, so, impatient with the government's inactivity on the issue, McLeod subjected the Bank of Nova Scotia to examination by two Scottish accountants, making his the first Canadian chartered bank to be verified by an independent, external audit. McLeod did not win his battle until 1913, when the Bank Act was revised and such inspection became compulsory.

Between 1910 and 1920 the bank embarked upon a series of major acquisitions that significantly altered its size and the scope of its operations. After two years of informal discussions, the bank officially merged with the oldest Canadian chartered bank, the Bank of New Brunswick, on December 11, 1912. Established in 1820, the Bank of New Brunswick was a relatively small institution, confined to 31 branches in a single region and lacking the resources to expand because of its traditional practice of returning capital to shareholders. In 1914, with the acquisition of the 12-year-old Toronto-based Metropolitan Bank, the Bank of Nova Scotia became the fourth largest financial institution in Canada. Five years later, the Bank of Nova Scotia acquired the Bank of Ottawa, allowing it to expand westward again without having to establish new branches.

Joining other Canadian financial institutions in the war effort during World War I, Scotiabank experienced only minor disruptions in operations and staffing and returned to normal upon the war's end.

Consolidation and a Growing Asset Base, 1920s to Early 1990s

During the early 1920s, the bank slowed the pace of external growth to focus its attention on consolidating the operations of its three prewar acquisitions and reorganizing its departments for greater efficiency. An Investment Department was formed to handle securities transactions, which represented a significant amount of the bank's business in Toronto, Montreal, and New York.

The strong postwar recovery brought healthy earnings throughout most of the decade, until the 1929 stock market crash and subsequent depression. Between 1933 and 1935, the bank closed 19 domestic branches as profits dropped by half a million dollars, to C$1.8 million. Business conditions in Newfoundland deteriorated, the Social Credit Party rose to power in Alberta and enacted troublesome legislation there, and political difficulties in Cuba and Puerto Rico pressured international activities.

Company Perspectives:

Since welcoming our first customers in 1832, Scotiabank has enjoyed continued success by building on traditional core strengths—risk management, cost control, diversification, customer satisfaction and great employees. Our goal is to be the best and most successful Canadian-based international financial services group.

Economic recovery went up and down between 1936 and 1939 as the positive effects of the growing Canadian mining industry were offset by a drought in the West. The bank's asset base continued to grow, but not without some managerial concern—it consisted largely of loans to the government for relief funds, rather than higher-yielding commercial transactions.

World War II increased the demand for banking services, particularly by the government for financing the war. By the end of the war the bank's assets had surpassed C$600 million, but federal government securities represented 50 percent of the total.

Offering New Services and Financial Products in the Prosperous Postwar Period

In 1945 the new general manager, Horace L. Enman, renewed prewar efforts to explore new business opportunities and improve shareholders' returns. Buoyed by heavy immigration to Canada and the nation's need for capital, the bank's commercial loan activity increased after the war to restore a more favorable balance between lending to business concerns and to the government. In 1949 Enman became president and C. Sydney Frost became general manager. By this time the bank's rapid growth and extensive reach demanded greater decentralization. Regional offices gradually assumed responsibility for staffing and maintaining branch activities and credit supervision. By 1950 the bank had opened 90 new branches, half in British Columbia and Alberta.

The 1950s were a period of economic prosperity throughout Canada. Resource development and improvements in transportation increased immigration levels in major Canadian cities and provided a stimulus to growth. The change from a fixed to a floating official exchange rate allowed the bank to take advantage of the open market for the Canadian dollar and enhance its exchange-trading skills. When the National Housing Act was passed in 1954, the bank established a mortgage department, and it later developed a secondary mortgage market among pension funds to offset decreased lending activity. The bank also introduced an insured savings plan that brought in a substantial amount of new business, and more importantly, gave the bank a competitive advantage in selling banking services.

A change in the Bank Act in 1954 permitted banks to make automobile and household loans, prompting the bank to introduce a consumer credit program in 1958. In order for the bank to observe the 6 percent interest rate ceiling mandated by the Bank Act yet successfully operate in the consumer lending area on a large-scale basis, these loans required customers to deposit payments every month into a bank account that would pay off the loan by the due date and return a higher rate of interest to the bank over the life of the loan. By its second year, this plan had generated C$100 million in loans and become a major contributor to the bank's overall earnings. When, in 1959, a money squeeze threatened its lending activity volume, the bank introduced a one-to-six-year term note that allowed it to compete successfully with finance and trust companies.

The bank continued its international expansion during this period, particularly in Jamaica, Trinidad, and Barbados, although the nationalization of Cuban banks in 1961 forced it, regretfully, to close the eight branches it had established there at the beginning of the century.

In 1958 the bank joined with British financial interests to form the Bank of Nova Scotia Trust Company to engage in offshore and trust operations which were off-limits to foreign banks. A year later, the Bank of Nova Scotia Trust Company of New York was established.

Beginning in 1960, the bank aggressively pursued a strategy to increase its volume of deposits by resuming the establishment of new branches in Canada as well as abroad. This inflow of funds was required to support the bank's consumer credit operations while also meeting the demand for mortgages and short-term commercial loans. More than 60 percent of these new branches were in convenient suburban locations to attract new customers in and around Toronto, Montreal, Edmonton, and Calgary. Coupled with new products such as term notes, certificates of deposit, and six-year certificates, this campaign increased the volume of personal savings deposits by 50 percent between 1960 and 1965.

Key Dates:

1832:

The Bank of Nova Scotia (or Scotiabank) is born; it is the first public financial institution in Halifax.

1883:

The Union Bank of Prince Edward Island is acquired.

1889:

Scotiabank makes its first move into the Caribbean, opening a branch in Kingston, Jamaica.

1900:

Headquarters are moved to Toronto.

1912:

Bank of Nova Scotia merges with the Bank of New Brunswick, the oldest Canadian chartered bank.

1914:

Toronto-based Metropolitan Bank is acquired, making Scotiabank the fourth largest financial institution in Canada.

1919:

The Bank of Ottawa is acquired.

1954:

Passage of the National Housing Act leads Scotia-bank to create a mortgage department.

Economic turmoil in Argentina leads to the bank's sale of its subsidiary there and a C$540 million writedown on its investment.

2003:

Stake in Scotiabank Inverlat is increased to 91 percent.

This increased activity also enabled the bank to maintain its presence in the financial services industry despite the ceiling on lending rates, which had virtually eliminated the bank from competing effectively against trust and finance companies in all areas except for personal loans. During this time, the bank also increased its mortgage involvement by joining with two other partners to form three new ventures: Markborough Properties, a real estate company; the Mortgage Insurance Company of Canada; and Central Covenants, a mortgage financing company.

In 1963 the bank underwent a major internal reorganization, and a new profit planning system was introduced that required each branch and region to submit annual loan and deposit forecasts to be incorporated into the bank's overall plan. This system allowed the bank to further decentralize operations, to encourage competition among branches, and to better identify the services its customers wanted.

Meanwhile, business in the Caribbean continued to grow, despite losses in Cuba. Much of this growth was hotel and resort financing in areas such as Jamaica and Puerto Rico, where tourism was becoming big business. The bank also opened branches in London, Glasgow, Amsterdam, Munich, Beirut, and Tokyo. Its international division became a major player in the Eurodollar market at this time.

During the early 1960s, the bank also worked to establish a stronger presence in the United States, particularly in Los Angeles and Houston, by offering financing and deposit opportunities for U.S. corporations in addition to international tax services. These efforts fueled the bank's accelerated growth in the second half of the decade.

Focusing on Existing Operations in the 1970s

At home, the early 1970s saw strong personal and small business lending activity, leading the bank to launch a number of new services, including automobile financing and a farm program to meet credit needs in the agricultural sector. Lending activity shifted significantly toward commercial concerns, particularly retail accounts, later that decade as inflation increased daily operational costs for Canadian businesses.

Actively involved in the precious metals market since 1958, the bank expanded this business throughout the 1970s by buying two-thirds of the country's annual production and then selling actual bullion and bullion certificates. It was also during this period that the rising expenses of branch development caused the bank to refocus its emphasis from opening new offices within Canada to improving existing operations and relocating branches to more lucrative areas.

In 1972, the bank was sued by VK Mason Construction Ltd. for negligent misrepresentation related to the building of an office and shopping complex. The contractor had required assurance from the bank that the developer, Courtot Investments, had sufficient financing to finish the construction before it would agree to take on the job, and Scotiabank had informed Mason that interim financing was available to Courtot if needed. When the project was completed, Mason was paid C$1 million less than had been agreed and found that, rather than helping the developer pay its creditors, the bank called in its own loan and sold the complex when Courtot defaulted.

The Supreme Court of Canada found against the bank, though it affirmed the bank's right of first claim on the developer's assets as the mortgagee. Mason was permitted to collect damages by placing a lien on the bank's assets without having to compete with other Courtot creditors.

Organizational changes at the general office were made in the second half of the 1970s which created separate departments for each of the bank's three main customer categories: individual, commercial, and large corporate. In 1980 an operations department was formed to consolidate many of the branch, regional, and head office functions into one area, a move which signaled a shift away from decentralization toward more direct headquarters control.

Negative Publicity from Series of Cases: Early 1980s

The bank's total assets reached C$50 billion by the end of 1981, with international business growing twice as fast as domestic operations and at a higher rate than that of any other Canadian bank. This growth was attributed to many factors, including the bank's established European and American presence, its expansion into the Asia-Pacific region with the 1981 opening of branch in Japan, and the development of a worldwide foreign exchange and banking system that operated around the clock. The year also saw the historic opening of the first Canadian banking representative office in China.

Although a downturn in the economy during 1983 forced the bank to curtail expansion temporarily, its focus on smaller companies saved it from the large-scale losses other Canadian banks suffered from loans made to failing firms such as Dome Petroleum and Massey-Ferguson, and to Mexico, Brazil, and Poland.

This focus on smaller companies and individuals did create image problems in the corporate and commercial areas. To counter the perception that the bank was not fully committed to businesses, Scotiabank embarked upon an extensive, innovative advertising campaign in 1986 using customers' case histories and games of visual illusion to show the various ways that the bank had helped companies.

During the first half of the 1980s, the bank was accused of wrongdoing in a series of cases stemming from its activities both at home and abroad. In March 1983, the bank was asked by a Miami court to release records from its Cayman Islands branch concerning certain customers under investigation for narcotics and tax violations. Although the bank was protected under Cayman Island law from such releases, a Florida judge ruled that the bank stood in contempt of court and fined it US$25,000 a day, retroactive to November 1983, for each day it did not produce the records. In order to end a stalemate that could have forced the bank into bankruptcy, the Cayman Islands Governor-in-Council intervened to authorize the bank to supply the required information, but not before the fine had reached US$1.8 million. The bank lost its appeal to the U.S. Supreme Court in January 1985.

In 1984 the bank, along with four other Canadian banks, was the subject of a one-year investigation by the Royal Commission of the Bahamas into drug dealing and money laundering by Bahamian Prime Minister Pindling and his wife. Scotiabank had lent more than C$1 million to Pindling between 1977 and 1983 and had also accepted deposits from the couple totaling C$114,000 from an unidentified source. Although the investigation was inconclusive, it cast a cloud on a 1985 case alleging that the bank had committed fraud against the Investment Dealers Association of Canada in its involvement in the failure of Atlantic Securities Ltd. in 1981. Although this case generated much controversy, the Nova Scotia County Court acquitted the bank.

Continued Global Expansion in the Late 1980s and Early 1990s

In 1987 Scotiabank further penetrated the financial services market with the formation of Scotia Securities. That subsidiary, which provided discount brokerage and security underwriting services, allowed the bank to compete more effectively with investment banking firms. In addition to acquiring other banks during the late 1980s and early 1990s, the Bank of Nova Scotia pursued a strategy of global expansion to assure profitability regardless of any fluctuations in individual markets. It also worked to improve the quality of the loans in its portfolio and to increase the efficiency of its operations. Among the acquisitions during this period was the 1988 purchase for C$419 million of the brokerage firm McLeod Young Weir Ltd., which was later merged with Scotia Securities to form ScotiaMcLeod. Scotia-bank also acquired a 40 percent stake in Solidbank Corp. in the Philippines in 1998 and a 24 percent stake in Banco Sud Americano, S.A., the sixth largest bank in Chile, in 1991. Also, in 1992, in the wake of the enactment of the North American Free Trade Agreement, Scotiabank became the first Canadian bank to move into Mexico, spending US$75 million for a 5 percent interest in Grupo Financiero Inverlat, S.A. de C.V. The Bank of Nova Scotia also opened its first bank branch in China, which it located in Guangzhou (formerly Canton).

The early 1990s also saw a gradual transition in the top leadership at the Bank of Nova Scotia. Cedric Ritchie, president and CEO since 1972 and chairman since 1974, handed over the presidency to Peter Godsoe, native of Halifax and career banker at Scotiabank, in 1992. Godsoe gained the CEO position the following year and became chairman at the beginning of 1995.

Scotiabank's efforts during the late 1980s and early 1990s were clearly paying off by the mid-1990s. Indeed, the bank's asset base ballooned from about C$94 billion in 1992 to nearly C$138 billion by early 1995—making it the third largest Canadian bank. About C$12 billion in assets were gained in one fell swoop in 1994 when Scotiabank acquired Montreal Trustco Inc. for about C$290 million. The purchase bolstered two areas of weakness for Scotiabank: its retail banking presence in Central Canada and its wealth management operations; also gained were Montreal Trustco's corporate trust services activities. The bank's sales also spiraled upward to about C$9.4 billion in 1994. Net income slipped in 1994 as a result of charges related to restructuring, but profitability had been improving steadily since the late 1980s.

By 1995, Scotiabank had more operations in Latin America and Asia than any other Canadian bank, and Scotiabank executives were working to set up new partnerships with banks in India, Malaysia, Brazil, Peru, and Venezuela. That year the bank purchased 25 percent of Argentina's Banco Quilmes S.A. and 80 percent of Corporacion Mercaban, among whose holdings was Banco Mercantil de Costa Rica, a commercial and consumer bank with a large business in auto loans. The Bank of Nova Scotia was also branching out into new markets, such as insurance, opened up by Canadian deregulation of the banking industry. As a base for the move into insurance Scotiabank acquired two inactive insurance firms in the mid-1990s, Glacier National Life Assurance and property and casualty insurer Canada Security Assurance Co.

Late 1990s and Beyond

Following Mexico's peso crisis in 1994, that nation's banking industry collapsed under 100 percent interest rates and the inability of borrowers to repay their loans. Scotiabank's Mexican affiliate fell into bankruptcy and was put under the administration of the government, and Scotiabank took a C$145 million writedown on its investment in Grupo Financiero Inverlat in late 1995. The following year, however, the bank repurchased a 10 percent interest in Inverlat and also gained the right to increase its stake to 55 percent in 2000. Meantime, profits at the Bank of Nova Scotia surpassed the C$1 billion mark for the time in 1996.

Scotiabank stepped up its acquisition activity in 1997. It spent US$55 million for 35 percent of a small Indonesian bank, PT Bank Arya Panduarta, as well as C$260 million to acquire the 75 percent of Banco Quilmes, its Argentinean affiliate, it did not already own. The biggest deal that year, however, was Scotia-bank's C$1.25 billion purchase of National Trustco Inc., the second largest independent trust company in Canada with 175 branches and C$14.6 billion in assets. The operations of the two companies meshed well, given that 80 percent of National Trustco's branches were in Ontario, a historically weak market for the Bank of Nova Scotia. In the integration process over the next three years, about 50 overlapping branches were closed and about 1,000 jobs were eliminated. This acquisition helped propel Scotiabank's asset base beyond the C$200 billion mark by 1998.

The Canadian banking industry appeared to be headed for the biggest shakeup in its history in 1998 when Royal Bank of Canada and Bank of Montreal agreed to a merger, as did the Toronto-Dominion Bank and Canadian Imperial Bank of Commerce—two mergers involving the four other members of Canada's "Big Five" banks, with Scotiabank the odd bank out. Godsoe lobbied intensely in opposition to the mergers, arguing that they would lead to job cuts numbering 20,000, massive branch closures, and other negative outcomes not in the public interest. In December 1998 Finance Minister Paul Martin scotched both of the deals, having concluded that the mergers would create two banks wielding too much power in the Canadian market, with competition in the industry being severely reduced.

Scotiabank also felt some of the aftershocks of the Asian economic crisis that erupted in 1997. The bank was forced in 1998 to write off its equity stake in its Indonesia affiliate, PT Bank Arya, and to set aside provisions of US$67 million for nonperforming loans in various emerging markets. On the positive side, however, the bank's stake in Banco Sud Americano was increased to 61 percent, and that Chilean bank was subsequently renamed Scotiabank Sud Americano, S.A. In 2000 the Bank of Nova Scotia sold its holding in Solidbank for C$140 million, a move that cleared the way for that bank to merge with a larger Philippine bank. It also exercised an option to increase its stake in Grupo Financiero Inverlat to 55 percent, with the purchase price being US$184 million; the Mexican bank was subsequently renamed Grupo Financiero Scotiabank Inverlat. At the same time, Scotiabank also cut back on its Canadian operations, selling 43 branches in Quebec to Laurentian Bank.

During 2002 the Bank of Nova Scotia acquired Charles Schwab Canada Co. from the Charles Schwab Corporation, the huge U.S. discount broker. The newly acquired Canadian operations were merged with Scotiabank's existing discount brokerage, which was rebranded ScotiaMcLeod Direct Investing. Now both the full-service and the discount brokerages of Scotiabank operated under the ScotiaMcLeod name. Also in 2002, Scotia-bank bought a modest equity stake in Xi'an City Commercial Bank, which was based in the capital city of the Shaanxi province of northern China.

Another severe economic crisis, this time in Argentina, had a major impact on Scotiabank in 2002. In the political and economic chaos that followed Argentina's defaulting on its foreign debt in December 2001, the operations of Banco Scotia-bank Quilmes were suspended by the local government because of liquidity problems, after Scotiabank refused to inject more capital into the troubled bank. In September 2002 Scotiabank sold the assets of its Argentinean bank to two small local banks, and it also took a C$540 million aftertax writedown on its investment there. One result was that net income fell to C$1.8 billion for the year, down 17 percent from the $2.17 billion figure recorded the year previous.

By 2002 Godsoe had changed his tune on mergers between the big Canadian banks. He now not only favored them but also attempted to quietly engineer one with the Bank of Montreal that summer. But this deal was squashed as well, with the veto this time reportedly coming directly from the office of Prime Minister Jean Chrétien. The federal government said that it would not consider approving any bank mergers before September 2004.

The following year was another year of executive transition at the bank. In January 2003 Richard E. Waugh was named president of Scotiabank, having joined the bank in 1970 and most recently served as vice-chairman, wealth management and international banking. In August 2003 the bank announced that Waugh would succeed Godsoe as CEO in December of that year, and that Godsoe would remain chairman until March 2004, when a nonexecutive chairman would replace him. Meanwhile, Scotiabank paid C$465 million to the Mexican government's bank bailout agency for an additional 36 percent of Scotiabank Inverlat, increasing its stake to 91 percent. It was expected to acquire the remaining 9 percent stake in relatively short order. In July 2003 Scotiabank announced that it would double its operations in the Dominican Republic by buying 40 branches and selected financial assets of the defunct Banco Intercontinental S.A.

The Bank of Nova Scotia was well-positioned in the early 2000s with a nice balance of operations: about half of earnings came from its domestic banking and wealth management units, one-quarter from international banking activities, and the other quarter from Scotia Capital, its investment and corporate banking unit. Scotiabank was likely to continue to seek opportunities for expansion outside of Canada, but it appeared that gaining a major presence in the U.S. retail banking sector had reached the top of the bank's agenda, ahead of further ventures into emerging markets. According to Godsoe, the bank could afford to spend as much as C$2 billion in cash on a U.S. acquisition. Whether the Bank of Nova Scotia would actually go ahead with a major U.S. purchase prior to September 2004, when the federal government's prohibition on bank mergers was slated to end, remained an open question.

The Bank of Nova Scotia, the second oldest bank in Canada, has more than 1,000 domestic offices as well as offices in 45 foreign countries. Scotiabank, as it is usually called, conducts its activities through four major divisions: retail banking and operations, Canadian commercial banking, North American corporate and investment banking, and international.

The first public financial institution in the colonial port city of Halifax, the Bank of Nova Scotia was formed on March 30, 1832 to handle the economic activity associated with the area’s lumbering, fishing, farming, and foreign trade. None of the members of the first board of directors had any practical banking experience, but this did not deter them from setting up the necessary operations and appointing James Forman, a prominent citizen of Halifax, to serve as the first cashier (as the general manager was called then).

The bank officially opened in August, 1832, a time of unfavorable economic conditions because of massive crop failures and a cholera outbreak. Early development, therefore, focused on establishing a foreign exchange business with agents in New York, London, and Boston, while local agencies and the main office in Halifax concentrated on making domestic loans.

Over the next 30 years, the bank grew slowly in the face of increased competition from existing institutions, such as the Halifax Banking Company and the Bank of British North America, as well as from new banks opening throughout Nova Scotia. It was not until the early 1870s that the staff also determined that growth had been stunted by Mr. Forman’s embezzlement of $315,000 since 1844.

The bank gradually recovered from these losses through the efforts of Forman’s successor, William C. Menzies, who guided an expansion program that increased total assets to $3.5 million by 1875. Though local industry was declining, growth continued throughout the decade as the bank found opportunities in financing coal mining, iron, and steel businesses serving the railway and steamship lines. These improvements in transportation stimulated manufacturing throughout Canada, which also served to fuel the bank’s development.

The Bank of Nova Scotia expanded outside the maritime provinces in 1882, when it opened a branch in Winnipeg to take advantage of opportunities created by a real estate boom in the area. The boom collapsed within six months, however, saddling the bank with enormous losses and forcing the branch to close three years later.

In 1883, the Bank of Nova Scotia acquired the Union Bank of Price Edward Island. This bank had sought a larger, stronger institution to help it weather hard times that had already forced the liquidation of one local bank and were seriously affecting others in the area. By the end of that year, the Bank of Nova Scotia was operating 23 branches in Prince Edward Island, New Brunswick, and Nova Scotia.

Although a depression in Canada in the early 1880s caused heavy losses stemming from the failure of several businesses, the bank had rebounded enough by 1885 to consider further expansion, this time in the United States. Minneapolis was chosen, because of its strong grain and manufacturing industries, to be the initial site for a direct lending and foreign exchange business. This office closed seven years later when the local environment became less favorable and other cities, such as Chicago, showed more potential.

In 1888, the bank opened an office in Montreal in a second attempt to establish a domestic presence outside of the maritime provinces. This office was followed a year later by an office in Kingston, Jamaica, the first time a Canadian bank had expanded outside North America or the United Kingdom. The next new branch opened in St. John’s, Newfoundland in 1894 to handle the business of two local institutions that had dissolved suddenly. Credit for this vigorous expansion goes to Thomas Fyshe, who became cashier in 1876 and resigned in 1897 after 21 years with the bank.

In March, 1900 the bank moved its headquarters to Toronto, to be better able to take advantage of opportunities offered by the Klondike Gold Rush and the completion of the Canadian Pacific Railway, as well as to be closer to its other branches in Canada and the United States. Its move into western Canada was only somewhat successful, however; several unprofitable branches closed soon after they opened, while others in Edmonton, Calgary, and Vancouver were slow to make a profit. Nonetheless, the bank considered expansion a necessary part of its overall strategic plan to achieve national growth and avoid takeover by another institution. Development in the East was more successful; 19 new branches opened in Nova Scotia and New Brunswick, 16 opened in Ontario, and four opened in Quebec between 1897 and 1909.

Beginning in 1901, Henry C. McLeod, who served as general manager from 1897 to 1910, waged a campaign
to require all Canadian banks to undergo external inspection by the Canadian Department of Finance. This effort, prompted by the large number of bank failures that had occurred since 1895, was intended to win the public’s confidence in its financial institutions. None of the other Canadian banks supported him, so, impatient with the government’s inactivity on the issue, McLeod subjected the Bank of Nova Scotia to examination by two Scottish accountants, making his the first Canadian chartered bank to be verified by an independent, external audit. McLeod didn’t win his battle until 1913, when the Bank Act was revised and such inspection became compulsory.

Between 1910 and 1920 the bank embarked upon a series of major acquisitions that significantly altered its size and the scope of its operations. After two years of informal discussions, the bank officially merged with the oldest Canadian chartered bank, the Bank of New Brunswick, on December 11, 1912. The Bank of New Brunswick was a relatively small institution, confined to 31 branches in a single region and lacking the resources to expand due to its traditional practice of returning capital to shareholders. In 1914, with the acquisition of the 12-year-old Toronto-based Metropolitan Bank, the Bank of Nova Scotia became the fourth largest financial institution in Canada. Five years later, the Bank of Nova Scotia acquired the Bank of Ottawa, allowing it to expand westward again without having to establish new branches.

Joining other Canadian financial institutions in the war effort during World War I, Scotiabank experienced only minor disruptions in operations and staffing and returned to normal upon the war’s end.

During the early 1920s, the bank slowed the pace of external growth to focus its attention on consolidating the operations of the three prewar acquisitions and reorganizing its departments for greater efficiency. An Investment Department was also formed to handle securities transactions, which represented a significant amount of the bank’s business in Toronto, Montreal, and New York.

The strong postwar recovery brought healthy earnings throughout most of the decade, until the 1929 stock market crash and subsequent depression. Between 1933 and 1935, the bank closed 19 domestic branches as profits dropped by half a million dollars, to C$1.8 million. Business conditions in Newfoundland deteriorated, the radical Social Credit Party rose to power in Alberta and enacted troublesome legislation there, and political difficulties in Cuba and Puerto Rico pressured international activities.

Economic recovery went up and down between 1936 and 1939 as the positive effects of the growing Canadian mining industry were offset by a drought in the West. The bank’s asset base continued to grow, but not without some managerial concern—it consisted largely of loans to the government for relief funds, rather than higher-yielding commercial transactions.

World War II increased the demand for banking services, particularly by the government for financing the war. By the end of the war the bank’s assets had surpassed $600 million, but federal government securities represented 50% of the total.

In 1945, the new general manager, Horace L. Enman, renewed prewar efforts to explore new business opportunities and improve shareholders’ returns. Buoyed by heavy immigration to Canada and the nation’s need for capital, the bank’s commercial loan activity increased after the war to restore a more favorable balance between lending to business concerns and to the government. In 1949, Enman became president and C. Sydney Frost became general manager. By this time the bank’s rapid growth and extensive reach demanded greater decentralization. Regional offices gradually assumed responsibility for staffing and maintaining branch activities and credit supervision. By 1950, the bank had opened 90 new branches, half in British Columbia and Alberta.

The 1950s were a period of economic prosperity throughout Canada. Resource development and improvements in transportation increased immigration levels in major Canadian cities and provided a stimulus to growth. The change from a fixed to a floating official exchange rate allowed the bank to take advantage of the open market for the Canadian dollar and enhance its exchange-trading skills. When the National Housing Act was passed in 1954, the bank established a mortgage department, and it later developed a secondary mortgage market among pension funds to offset decreased lending activity. The bank also introduced an insured savings plan that brought in a substantial amount of new business, and more importantly, gave the bank a competitive advantage in selling banking services.

A change in the Bank Act in 1954 permitted banks to make automobile and household loans, prompting the bank to introduce a consumer credit program in 1958. In order for the bank to observe the 6% interest rate ceiling mandated by the Bank Act yet successfully operate in the consumer lending area on a large-scale basis, these loans required customers to deposit payments every month into a bank account that would pay off the loan by the due date and return a higher rate of interest to the bank over the life of the loan. By its second year, this plan had generated $100 million in loans and become a major contributor to the bank’s overall earnings. When, in 1959, a money squeeze threatened its lending activity volume, the bank introduced a one-to-six-year term note that allowed it to compete successfully with finance and trust companies.

The bank continued its international expansion during this period, particularly in Jamaica, Trinidad, and Barbados, although the nationalization of Cuban banks in 1961 forced it, regretfully, to close the eight branches it had established there at the beginning of the century.

In 1958, the bank joined with British financial interests to form the Bank of Nova Scotia Trust Company to engage in offshore and trust operations which were off-limits to foreign banks. A year later, the Bank of Nova Scotia Trust Company of New York was established.

Beginning in 1960, the bank aggressively pursued a strategy to increase its volume of deposits by resuming the establishment of new branches in Canada as well as abroad. This inflow of funds was required to support the bank’s consumer credit operations while also meeting the demand for mortgages and short-term commercial loans. More than 60% of these new branches were in convenient suburban locations to attract new customers in and around Toronto, Montreal, Edmonton, and Calgary.

Coupled with new products like term notes, certificates of deposit, and six-year certificates, this campaign increased the volume of personal savings deposits by 50% between 1960 and 1965.

This increased activity also enabled the bank to maintain its presence in the financial services industry despite the ceiling on lending rates, which had virtually eliminated the bank from competing effectively against trust and finance companies in all areas except for personal loans. During this time, the bank also increased its mortgage involvement by joining with two other partners to form three new ventures: Markborough Properties, a real estate company; the Mortgage Insurance Company of Canada; and Central Covenants, a mortgage financing company.

In 1963, the bank underwent a major internal reorganization, and a new profit planning system was introduced which required each branch and region to submit annual loan and deposit forecasts to be incorporated into the bank’s overall plan. This system allowed the bank to further decentralize operations, to encourage competition among branches, and to better identify the services its customers wanted.

Meanwhile, business in the Caribbean continued to grow, despite losses in Cuba. Much of this growth was hotel and resort financing in areas like Jamaica and Puerto Rico, where tourism was becoming big business. The bank also opened branches in London, Glasgow, Amsterdam, Munich, Beirut, and Tokyo. Its international division became a major player in the Eurodollar market at this time.

During the early 1960s, the bank also worked to establish a stronger presence in the United States, particularly in Los Angeles and Houston, by offering financing and deposit opportunities for U.S. corporations in addition to international tax services. These efforts fueled the bank’s accelerated growth in the second half of the decade.

At home, the early 1970s saw strong personal and small business lending activity, leading the bank to launch a number of new services, including automobile financing and a farm program to meet credit needs in the agricultural sector. Lending activity shifted significantly toward commercial concerns, particularly retail accounts, later that decade as inflation increased daily operational costs for Canadian businesses.

Actively involved in the precious metals market since 1958, the bank expanded this business throughout the 1970s by buying two-thirds of the country’s annual production and then selling actual bullion and bullion certificates. It was also during this period that the rising expenses of branch development caused the bank to refocus its emphasis from opening new offices within Canada to improving existing operations and relocating branches to more lucrative areas.

In 1972, the bank was sued by VK Mason Construction Ltd. for negligent misrepresentation related to the building of an office and shopping complex. The contractor had required assurance from the bank that the developer, Courtot Investments, had sufficient financing to finish the construction before it would agree to take on the job, and Scotiabank had informed Mason that interim financing was available to Courtot if needed. When the project was completed, Mason was paid C$1 million less than had been agreed and found that, rather than helping the developer pay its creditors, the bank called in its own loan and sold the complex when Courtot defaulted.

The Supreme Court of Canada found against the bank, though it affirmed the bank’s right of first claim on the developer’s assets as the mortgagee. Mason was permitted to collect damages by placing a lien on the bank’s assets without having to compete with other Courtot creditors.

Organizational changes at the general office were made in the second half of the 1970s which created separate departments for each of the bank’s three main customer categories: individual, commercial, and large corporate. In 1980 an operations department was formed to consolidate many of the branch, regional, and head office functions into one area, a move which signaled a shift away from decentralization toward more direct headquarters control.

The bank’s total assets reached C$50 billion by the end of 1981, with international business growing twice as fast as domestic operations and at a higher rate than that of any other Canadian bank. This growth was attributed to many factors, including the bank’s established European and American presence, its expansion into Asia and the Pacific, and the development of a worldwide foreign exchange and banking system that operated around the clock. The year also saw the historic opening of the first and only Canadian banking branch in China.

Although a downturn in the economy during 1983 forced the bank to temporarily curtail expansion, its focus on smaller companies saved it from the large-scale losses other Canadian banks suffered from loans made to failing firms like Dome Petroleum and Massey-Ferguson, and to Mexico, Brazil, and Poland.

This focus on smaller companies and individuals did create image problems in the corporate and commercial areas. To counter the perception that the bank was not fully committed to businesses, Scotiabank embarked upon an extensive, innovative advertising campaign in 1986 using customers’ case histories and games of visual illusion to show the various ways that the bank had helped companies.

During the first half of the 1980s, the bank was accused of wrongdoing in a series of cases stemming from its activities both at home and abroad. In March, 1983, the bank was asked by a Miami court to release records from its Cayman Islands branch concerning certain customers under investigation for narcotics and tax violations. Although the bank was protected under Cayman Island law from such releases, a Florida judge ruled that the bank stood in contempt of court and fined it $25,000 a day, retroactive to November 1983, for each day it did not produce the records. In order to end a stalemate which could have forced the bank into bankruptcy, the Cayman Islands Governor-in-Council intervened to authorize the bank to supply the required information, but not before the fine had reached US$1.8 million. The bank lost its appeal to the U.S. Supreme Court in January, 1985.

In 1984 the bank, along with four other Canadian banks, was the subject of a one-year investigation by the Royal Commission of the Bahamas into drug dealing and money laundering by Bahamian Prime Minister Pindling and his
wife. Scotiabank had lent more than $1 million to Pindling between 1977 and 1983 and had also accepted deposits from the couple totalling $114,000 from an unidentified source. Although the investigation was inconclusive, it cast a cloud on a 1985 case alleging that the bank had committed fraud against the Investment Dealers Association of Canada in its involvement in the failure of Atlantic Securities Ltd. in 1981. Although this case generated much controversy, the Nova Scotia County Court acquitted the bank.

In 1987 Scotiabank further penetrated the financial services market with the formation of Scotia Securities. This new subsidiary, providing discount brokerage and security underwriting services, allowed the bank to compete more effectively with investment banking firms.

Presently, the Bank of Nova Scotia is pursuing a strategy of global operations to assure profitability regardless of any fluctuations in individual markets. Competing successfully with both domestic and foreign banks will require greater investment in new services to attract new accounts, as well as improved efficiency to continue to deliver personalized attention to the bank’s current customers. Although Scotiabank shares the dilemmas of other financial institutions in coping with the problems of outstanding Third World debt, and also faces the continuing challenge of inflation at home, the bank and its current chairman, Cedric E. Ritchie, look forward to the coming decades with the enthusiasm and confidence that have characterized its development over the past 150 years.